Cost Accounting

Presented By:Ahsan Anwar

Haseeba KhadimSidra SaleemUsman Aziz

Maryum Afzal

Cost

Accountants define cost as a resource sacrificed or forgone to achieve a specific objective. A cost (such as direct materials or advertising) is usually measured as the monetary amount that must be paid to acquire goods or services.

Cost Accounting

Measures, analyzes and reports financial and non-financial information relating to the costs of acquiring or using recourses in an organization.

For Example: Oil Refining. The process costing collects information about all costs during an accounting period and divides those costs by total quantity output

Elements/Components of Cost Accounting

Following are the main elements involved in the manufacturing process where process costing method is adopted. Direct Material

Secondary Material Primary Material

Direct Labor Direct Expenses Production Overheads

Methods of Costing

The methods of costing refer to the techniques and processes employed in the ascertainment of costs. Many methods have been designed to suit the needs of different industries. These methods can be summarized as follows:It should be noted that two basic methods of costing are1. Job costing2. Process Costing

Cost Sheet

Cost Sheet is a presentation of cost data incorporating its various components in a systematic way.

Cost Sheet or a cost statement is a document which provides for the assembly of the detailed cost of a cost Centre or cost unit.

Importance of Cost Sheet

Fixation of Selling Price Help in cost control Cost ascertainment Facilities the managerial decisions Break-up of total cost by elements and

sub-divisions

Mechanism of Cost Build Up

Prime cost = Direct Material + Direct Labor + Direct expenses

Factory Cost = Prime Cost + Factory Overheads

Cost of Production = Works cost + office and Administrative overhead

Total cost = Cost of Production + Selling and Distributive Overhead

Sales = Total cost + profit

Prime Cost

Factory Cost

Cost Of Production

Total Cost

Sales

Cost Sheet

The various components of cost explained above are presented in the form of a statement. Such a statement of cost consists of prime cost, works/factory cost, cost of production, total cost and sales, is termed as cost sheet.

The preparation of a cost sheet can be understood with the help of the following illustration:

Advantages OF Cost Accounting

It helps us to ascertain the costs of goods produced.

It provides required information to the management

It classifies the cost into material, labor, fixed overhead or variable overhead.

Cost sheet is the main format of cost accounting.

Profit or loss estimated on specific product, branch, department or job.

It is an effective control device.

Queries